A real estate auction can be a great way to buy real estate inexpensively, but bidders must be sure to understand all the costs associated with winning an auction. The buyer's premium is one cost that an auction bidder must take into consideration.

Definition

A buyer's premium is an additional amount that must be paid when a person wins a real estate auction. It is a cost added to the amount of the auction's winning bid.

Amount

A buyer's premium is set at a percentage of the hammer price, which is the price of the winning bid. Typically, the buyer's premium is 3 to 10 percent of the hammer price.

Who Gets the Buyer's Premium?

The buyer's premium goes to the auction house. The business or individual who is selling the real estate does not get a portion of the buyer's premium.

Disclosure

The buyer's premium is fully disclosed to the auction bidders prior to the auction. It is the responsibility of the bidders to take the buyer's premium into consideration when placing bids.

Reason for a Buyer's Premium

The seller of the real estate must pay a fee to the auction house. The buyer's premium is used as a way to transfer some of this fee to the auction winner.

References

About the Author

Eric Scott has been a freelance writer for over four years. He specializes in business, entrepreneurship and investing. Scott received his Master of Business Administration from Loyola University with a concentration in finance and owned and operated a successful business for 10 years.